In the run-up to the US midterm elections on 8 November, US stocks took a beating. Based on its closing levels from 16 August to 12 October, the S&P 500 index dropped by 16.9%.
During this decline, my wife and I waded into US stocks, buying aggressively on 3 November. After the anticipated ‘red wave’ of Republican wins died out, US shares rebounded hard. Here are two top-performing stocks we bought during this turbulent time.
I first started using the internet in 1992 — 31 years ago. I used several different search engines before Google’s launch in 1998. Within months, Google became my default search and I never looked back.
At several points in my life, I seriously considered investing all of my personal wealth into Google stock. Today, how I wish I had.
On 3 November 2022, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) shares closed at $83.43, shortly after my wife bought them for our family portfolio. Frankly, I thought this was a crazy bargain at the time — I’d have willingly paid $100 a share to buy into Google’s owner then.
When I look at Alphabet today, I see a $1.56trn market leader with a huge competitive moat. Based on Friday’s closing price of $122.76, the stock is up a mighty 47.1% since 3 November. It’s also up 39.1% in 2023, 12.7% over one year, and 126.5% over five years.
Then again, though Alphabet has many different divisions and earning streams, the bulk of its revenues come from search advertising. Thus, when global growth slows and advertisers trim their budgets, the company’s growth trajectory gets derailed. This has happened in 2022-23.
However, Alphabet’s sheer strength, size and market dominance are a powerful force for future growth. That’s why if someone offered me $150 a share for our stock today, I’d turn them down.
The second of my US tech super-stocks is Bill Gates’ Microsoft Corp (NASDAQ: MSFT). On 3 November, this stock closed at $214.25. On Friday, it closed at $318.34, having soared by almost half (+48.6%) since then.
What’s more, Microsoft shares have jumped in value by 26.1% over the past year, while they’ve exploded by 223.7% over the last five years. Wow.
One reason for the stock’s 32.7% leap this calendar year is the company’s growing strength in artificial intelligence (AI). This $2.37trn tech titan has teamed up with OpenAI, creator of cutting-edge generative AI engine GPT-4, investing $10bn into the business.
As well as strengthening its Bing search engine with AI, Microsoft is a leading player in cloud-computing services via Azure. Today, the group is the second-largest US-listed company, but with companies slashing tech spending in 2022-23, things could get worse for Microsoft before they get better.
Now for the bad news
I don’t see these two stocks as the beautiful bargains they were in early November. Therefore, though we plan to hold onto our existing holdings tightly, my wife and I won’t buy more Alphabet or Microsoft stock yet.
Also, our returns in our local currency (UK sterling) are much lower than the gains made by these stocks. That’s because the US dollar has dropped in value from $1.12 to £1 to around $1.24 today. This has lowered our capital gains by about a tenth. Still, that’s fine by me!